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Voluntary Business Update
African Dawn Capital Limited
Incorporated in the Republic of South Africa
(Registration Number: 1998/020520/06)
JSE share code: ADW
ISIN: ZAE000060703
(“Afdawn” or the “Company")
VOLUNTARY BUSINESS UPDATE
1. KNIFE CAPITAL TRANSACTION
1.1. Shareholders are referred to the announcement released on
SENS on 13 December 2013, advising shareholders that an
agreement was entered into to acquire 100% of Knife Capital
Proprietary Limited (“Knife Capital”) on 12 December 2013
(“Knife Capital Transaction”) and all subsequent
announcements relating to the Knife Capital Transaction.
1.2. In terms of the Knife Capital Transaction, Afdawn acquired
100% of the issued shares in Knife Capital, for a purchase
consideration of R10 million (the “Purchase Price”), payable
to the Knife Capital vendors through the issue of
100 million Afdawn ordinary shares (the “Consideration
Shares”) in proportion to their shareholding in Knife
Capital. The Knife Capital Transaction became unconditional
and was duly implemented on or about 28 March 2014.
1.3. Pursuant to the Knife Capital Transaction, certain
additional consideration is due and owing to the Knife
Capital vendors. This is due to the following:
1.3.1. the number of Consideration Shares issued by Afdawn to the
Knife Capital vendors was calculated on the basis that the
net asset value of each Consideration Share was 10 cents
per share (the “Assumed Value”). Accordingly, in terms of
the Knife Capital Transaction, in the event that the net
asset value of each Consideration Share was determined to
be less than 10 cents per share (the “Audited Value”),
with reference to the audited annual financial statements
of Afdawn at 28 February 2014 (the “Afdawn AFS”), the
difference between the Assumed Value and the Audited Value
was payable to the Knife Capital vendors in cash on or
before 1 March 2015. Pursuant to the publication of the
Afdawn AFS, the Audited Value of the Consideration Shares
was determined to be 8.54 cents per share, and,
accordingly, a payment of R1.46 million was due to be paid
by Afdawn to the Knife Capital Vendors in cash on or
before 1 March 2015 (the “First NAV Liability”). Afdawn
and the Knife Capital vendors subsequently agreed that the
First NAV Liability would be payable to the Knife Capital
vendors in equal, interest-free instalments over a period
of twenty four months, amounting to R20 277.78 per Knife
Capital vendor per month, which payments have been paid by
Afdawn to date;
1.3.2. due to the prior year accounting error in Elite Group
Proprietary Limited, the quantum of which is still being
assessed and will be announced to the market (as announced
on SENS on 15 May 2015), the quantum of the First NAV
Liability will increase by a maximum further amount of
R2.1 million (the “Second NAV Liability”); and
1.3.3. in terms of the Knife Capital Transaction, the Purchase
Price would be further adjusted in the event that the
capital raised by Afdawn within twelve months of the
effective date of the Knife Capital Transaction
(“Effective Date”) was less than R50 million (“Capital
Raising Target”), which adjustment was capped at
R2 million and was payable by Afdawn issuing to the Knife
Capital vendors further shares in the share capital of
Afdawn (the “Share Issue Liability”), within seven days of
the first anniversary of the Effective Date. The Capital
Raising Target was not achieved and the R2 million Share
Issue Liability is due and owing to the Knife Capital
vendors.
1.4. Further, pursuant to the Knife Capital Transaction, 50% of
the carried interest due to Knife Capital (resulting from
the disposal of assets managed by Knife Capital on behalf of
a third party) was to be retained in Knife Capital or
distributed to Afdawn (“Carried Interest”).
1.5. Pursuant to the above, Afdawn and the Knife Capital vendors
have entered into an agreement in order to, inter alia,
settle the NAV Liability and the Share Issue Liability in a
manner which has minimal cash flow impact on Afdawn and is,
in the view of the board, in the best interests of both
Afdawn and the Knife Capital vendors (“Agreement”).
1.6. In terms of the Agreement:
1.6.1. the Knife Capital vendors have waived all of their rights
in relation to the Second NAV Liability and the Share
Issue Liability respectively (the “Waiver”). In
consideration for which, Afdawn has agreed to waive any
potential claim it may have (whether as the shareholder of
Knife Capital or otherwise) to the Carried Interest and
has consented to the Carried Interest being paid by Knife
Capital to the Knife Capital vendors; and
1.6.2. the First NAV Liability will continue to be paid by Afdawn
in the manner set out in paragraph 1.3.1.
2. INTENTION TO ESTABLISH A VENTURE CAPITAL FUND BY KNIFE CAPITAL
2.1. Post the implementation of the Agreement, Knife Capital will
remain a 100% held subsidiary of Afdawn as it is vital to
capacitate the group to execute its vision of investing in
innovative entrepreneurial businesses.
2.2. Eben van Heerden, the current financial director of Afdawn,
will become part of the management team of Knife Capital,
and a new financial director will be sought for Afdawn. The
remaining Knife Capital vendors, being Keet van Zyl and
Andrea Bohmert, will continue as key members of the Knife
Capital management team.
2.3. In addition to the above, Knife Capital is in the process of
raising a R50 million venture capital fund (“Fund 1”) with
an initial minimum size of R25 million, which will be
managed by Knife Capital. Afdawn has committed to contribute
at least 10% (ten percent) of the initial R25m.
3. BRINGING AFDAWN’s STRATEGY TO FRUITION
3.1. In order for Afdawn to execute its vision of becoming an
active investment holding company, acquiring shareholding in
entrepreneurial and innovation-driven companies with proven
growth strategies, the following legacy issues need to be
satisfactorily concluded:
3.1.1. SARS settlement of tax obligations;
3.1.2. Divestment of non-core assets; and
3.1.3. Finalisation of additional provisions and write-offs on
Elite Group (Proprietary) Limited resulting in prior year
accounting errors.
3.2. In light of the above, the Afdawn board is of the view that
Fund 1 will be complementary to the existing Knife Capital
business and will allow Knife Capital to take advantage of
imminent investment opportunities presented to Knife Capital
and its entrepreneurship development programme, Grindstone
Accelerator.
3.3. Once the legacy issues have been resolved as set out in
paragraph 3.1., Afdawn will become Knife Capital’s preferred
provider of permanent investment capital, and also invest
directly in new investments outside of Knife Capital, as it
will be in a position to access capital markets.
Cape Town
1 July 2015
Designated Adviser
PSG Capital
Date: 01/07/2015 04:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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